India Lenders’ Earnings to Highlight Strength of Economy as Global Tech Rout Seen Worsening

2023-10-13 10:25

India’s leading banks should underscore the resilience of Asia’s third-largest economy when they report next week, while the

India Lenders’ Earnings to Highlight Strength of Economy as Global Tech Rout Seen Worsening

India’s leading banks should underscore the resilience of Asia’s third-largest economy when they report next week, while the IT industry may confirm it remains under pressure.

Credit growth for India’s top lenders continued in July-September, preliminary operating numbers showed earlier this month, though margins were under pressure as the central bank held interest rates at the highest since 2018 and required that additional fund be parked with it, sapping liquidity. Banks have struggled to pass on the 250 basis points of rate hikes since last year amid stiff competition.

The withdrawal of the 2,000-rupee ($24) currency note, the highest denomination in circulation, drove deposit growth in the second quarter, analysts said. HDFC Bank Ltd.’s second-quarter results on Monday, the first since a recent merger made it one of the world’s most valuable banks, will be the “most important” for the Indian bank reporting season, according to Nomura.

Billionaire Mukesh Ambani’s Jio Financial Services Ltd., one of the hottest new listings of the year, reports maiden earnings next week. Speaking of fresh offerings, third-quarter earnings from Hong Kong Exchanges & Clearing Ltd. will shed more light on demand for new listings in Asia, which has been tepid so far this year as a weak market in China dulled sentiment.

India’s consumer sector growth has been stunted by weak rural demand and high inflation, prompting price cuts at a time when firms were trying to boost margins amid lower input costs. India’s weakest monsoon in five years compounded the pressure on consumers in primarily agrarian rural regions, potentially crimping earnings at Hindustan Unilever Ltd. and Nestle India Ltd. Higher crude prices also risk fanning inflation that remains above the central bank’s target.

Earlier this week, IT firms Infosys Ltd. and HCL Technologies Ltd. cut their revenue outlooks and reinforced concerns that the IT spending recovery in the US and Europe may be slower than anticipated. A similarly downbeat result is expected from smaller rival Wipro Ltd. on Wednesday. On the hardware side, chipmaker Taiwan Semiconductor Manufacturing Co. is slated to report lower sales.

Highlights to look out for:

Monday: HDFC Bank (HDFCB IN) was probably weighed down by the combination with its parent. A mandate for banks to park an additional 10% of their fresh deposits with the Reserve Bank of India will have compressed margins. Still, second-quarter profit probably grew by about a third, led by loan growth. The merged net interest margin may have shrunk to 3.5%, but should bounce back, according to Jefferies India, which will monitor comments on the integration of HDFC Life. Nomura will watch for the merger’s impact on the return on assets. Later in the week, top non-bank financier Bajaj Finance (BAF IN) is expected to report 28% profit growth, and IndusInd Bank (IIB IN) may post 25% earnings growth.

Wednesday: Wipro (WPRO IN) is set to see a 9% jump in second-quarter net income, estimates show. The IT services Ebit margin may be flat sequentially, with margins benefiting from improved utilization, fixed cost management, and greater use of automation, according to Nirmal Bang. Its third-quarter sales guidance may be modest due to its exposure to financial services, where discretionary IT spending has tightened, Bloomberg Intelligence said.

Thursday: For consumer goods firms Hindustan Unilever (HUVR IN), Nestle India (NEST IN) and ITC (ITC IN), analysts largely expect a repeat of last quarter’s weak volume growth amid sluggish rural demand. Nestle India is expected to fare better than its peers as it’s the least exposed to the rural market, Prabhudar Lilladher analyst Amnish Aggarwal said. While margins may have improved from a year ago as commodity prices fell, the focus will be on the implications of rising crude oil prices.

TSMC’s (2330 TT) third-quarter sales may have fallen 11% as the chip sector continues to work through excess inventory, according to Bloomberg calculations based on the chipmaker’s reported July-September revenue of NT$546.7 billion ($17 billion). The preliminary number fell less than the average estimate as AI demand helped offset softer smartphone and laptop chip sales. TSMC is the main maker of Nvidia’s AI accelerator chips, now sought widely to train large data models such as the one supporting OpenAI’s ChatGPT. Last quarter, the firm forecast full-year sales would fall 10% in dollar terms, more than the company guided earlier. It’s expected to see significantly higher contribution from AI orders in 2024 than the 6% this year, Economic Daily News reported.

Friday: HKEX’s (388 HK) third-quarter net income probably jumped 26%, estimates show. It may reach consensus for 28% profit growth in the second half, fueled by robust investment income and derivatives volume, BI analyst Sharnie Wong said. Alibaba’s logistics arm Cainiao filed for an initial public offering last month, which could raise at least $1 billion. That may open the door for more Chinese unicorns to go public in Hong Kong, reviving the city’s IPO market after the restructuring of China’s tech giants and forthcoming regulatory approvals, Wong added. The Asian financial hub is also accelerating a plan to keep financial markets open during typhoons.